Superannuation returns rise and build more wealth for retirees

Superannuation returns increased in the March quarter and the median growth fund in accumulation mode returned 3.4 per cent, according to SuperRatings, with the median overall growth fund returning 3.6 per cent according to Chant West.

Super funds “withstood the market volatility in early March prompted by concerns about the banking sector, and went on to post a solid return for the month”, Chant West researcher Mano Mohankumar said.

“The median growth fund (61 to 80 per cent in growth assets) was up 1.1 per cent, and that took the return for the first nine months of the financial year to 6.9 per cent,” Mr Mohankumar said.

That puts funds in the black over the past 18 months, more than offsetting the entire loss of 3.3 per cent for the median growth fund in the past financial year.

“While there have been significant ups and downs over each month in the year so far, the estimated financial year to March 31 return sits at 6.6 per cent,” SuperRatings director Kirby Rappell said.

“Funds are well equipped to navigate changing markets, with 10-year performance estimated to be 7.4 per cent and demonstrating resilience to date.”

Super benefits

New research from the Association of Superannuation Funds of Australia (ASFA) has found that superannuation is already making a big contribution to Australian retirements, despite the fact that many older people received relatively small super contributions from their employers in their early years.

ASFA found that only about 42 per cent of the age group between 66 and 69 receive the age pension, with the remainder of that cohort either still working or relying on their superannuation and other savings.

The growth of superannuation contributions, which stand at 10.5 per cent of salaries, is pushing more people into a comfortable retirement.

About 30 per cent of retired couples and singles reach the ASFA comfortable retirement standard, which now sits at an annual income of $69,691 for a couple and $49,462 for a single.

“By the year 2050, ASFA projections indicate that around 50 per cent of retiree households will be able to afford expenditure at the level of ASFA comfortable standard or above,” the research report fund stated.

Super balance growth is boosting household assets, despite the massive increases in property prices in recent years. Average total household assets according to the University of Melbourne’s HILDA survey stood at $642,000 in 2002.

By 2018, the most recent figures available, the average household assets stood at $1.068 million.

Despite the growth in other asset types, super balances accounted for 22.4 per cent of assets in 2018 compared with 19 per cent in 2002.

Superannuation’s importance in retirement savings is highlighted by the fact that only about 20 per cent of households own assets outside super and the family home. Over the 16 years to 2018, the number of households with super rose from 76.8 per cent to 84.7 per cent.

The average superannuation balance held per household nearly doubled in real terms over that period.

Despite the rising cost of superannuation tax concessions, the overall cost of retirement to the taxpayer remains affordable.

ASFA reported that the cost of super concessions and the age pension stands at 4 per cent of GDP and this figure is likely to rise to 5 per cent by 2060.

These costs are relatively low compared to the OECD average of 8.8 per cent of GDP spent by governments on retirement. This figure is expected to grow to 9.4 per cent by 2060.

Those figures should give some relief to concerns raised recently that the cost of super concessions would overtake the cost of the age pension in the budget. Because if this does happen, the overall cost of Australian retirements will remain well below those of comparable countries.

As superannuation balances increase and retirees become richer, the relative cost of the age pension to the budget will also decline. That is because this will result in less retirees being entitled to a full or part pension as the assets test bites into their asset base.

By around 2050 the percentage of retirees earning a comfortable retirement will meet up with the number of people on a pension, with both figures totalling 50 per cent.

The number of retirees on a pension has fallen dramatically from 79 per cent in 1997 to 65 per cent in 2023 as super balances have grown with rising contribution rates.

Super has already played an important role in improving Australian retirements, but ASFA deputy CEO Glen McCrea said more needed to be done.

“The upcoming federal budget provides an opportunity to further improve equity in Australia’s superannuation system,” Mr McCrea said.

“Introducing superannuation guarantee payments on paid parental leave and increasing the upper threshold for the Low Income Superannuation Tax Offset (LISTO) would substantially assist low- to middle-income earners, particularly women,” he said.

LISTO is a government payment to low-income earners of up to $500 annually into their superannuation to help build balances. It is capped at income of $37,000 a year, which ASFA would like to see raised to $45,000 with payments increased to $700.

ASFA said the government’s plans to double taxation on the earnings of super accounts with balances above $3 million would deliver $2 billion annually to the budget. It would reduce the budget cost on super concessions in accumulation by 9.5 per cent annually.

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